Consolidation in Contemporary America

This is where we left off last time, right?  The large dairy companies buy up the small cheese factories for the purpose of closing them to eliminate their competition in the marketplace.  Wisconsin Brick cheese then exists as whatever the large dairy company wants it to be.  The same paradigm exists for wine companies with the purchaser controlling the new future of the purchased, which often means just the brand name since the wine will henceforth be sourced elsewhere.

I used to work for a volume package store in Atlanta that had a bulletin board in the office that had a local map pinned to it.  There were thumb tacks placed on the map wherever small mom and pop package stores were in the area.  The stated goal of the ownership was to put those small players out of business so we would be the only show in town.  Oh, okay.

I also have a background in grocery store management and got some insights into how all of that works.  One day I was talking with the vendor who had the premier brand of bottled water in that aisle.  I asked him what his company had to pay the chain for that shelf space.  It was a thousand dollars per month for a one bottle facing and that was month to month with no guarantees for the next month.  Moreover that vendor had to pay for space in the store that he couldn't even use for his product.  That payment was to keep his competition from getting into the store.  At those stakes the smaller companies just could not play at that level.

Here's another grocery store story.  A small local coffee roaster wanted to get into a regional chain with a store here in town.  They were asked to pay tens of thousands of dollars for that privilege and they did, but had to wait until the brand to be replaced had sold out.  After a couple of months, they asked when they could stock their shelves.  They were then told that they would have to buy the existing inventory of the other brand in the chain in order to sell theirs in that store.  They had to walk away from the deal at that point, sans their down payment.

Here's another one.  Do you remember the line of diet foods that had actually made it into all of the grocery stores in the Atlanta market as a regional brand?  I don't either.  It was twenty-five years ago...but they had actually made it to that level and they were a legitimate brand growing in sales until a very large player bought their shelf space and put them out of business.

I swear all of the above is true to the best of my knowledge and as hard as it it to swallow, it is fair by the rules of commerce in our society.  Competition is tough, by definition.  To win requires nerves of steel, will, acumen at your sport, and especially, deep pockets.  If you can't meet the requirements, get out.

Since most of my experience in retail is wine experience, those stories exist there too but I have to be careful because I am still in the business and have ongoing dealings with major players.  The winners in wine company consolidation though seem to include both the buyers and the sellers.  The buyers enrich their portfolio with additional brands and the sellers get a nice payday for selling and then no longer have to struggle in this very tough business.  The losers appear to be the small wineries that are left to struggle with fewer options for distribution because the large companies so dominate the market.  The small players are marginalized by effectively being locked out of large retail chains.  Then they come to guys like me.  Selah!

Please join us Thursday evening (5-7pm) when Gail Avera of Lafayette Selections offers us the wines of Maggio of Lodi, California.  Friday evening from 5 to 7pm we will be tasting California Cabernets and other reds at our regularly scheduled tasting here.  Join us for that one too.  Henry Leung rejoins us in two weeks on Friday the 19th.